The Tax Issue is Not Just a Technicality

Some, including co-blogger Orin Kerr, have argued that today’s ruling that the individual mandate is a tax rests on a mere technicality. The mandate could have been a tax if only Congress had labeled it as such or structured it slightly differently, and so it makes sense for the Court to assume that it is a tax rather than invalidate an important law.

But the argument that this is not a tax has never been just about labeling or technicalities. The mandate is substantively a penalty rather than a tax, for reasons I explained here:

As recently as 1996, the Supreme Court reiterated the crucial distinction between a penalty and a tax. It ruled that “[a] tax is a pecuniary burden laid upon individuals or property for the purpose of supporting the Government,” while a penalty is “an exaction imposed by statute as punishment for an unlawful act” or – as in the case of the individual mandate – an unlawful omission. The individual mandate is a clear example of a penalty, where Congress requires people to purchase health insurance, and then punishes them with a fine if they fail to comply.

In September 2009, President Obama himself noted that “for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.” He was right….

Even if the individual mandate does somehow qualify as a tax, it is not one of the types of taxes that Congress is authorized to impose. The Constitution gives Congress the power to enact several types of taxes: Excise taxes, duties and imposts, income taxes, and “direct taxes” that must be apportioned among the states in proportion to population.

No one, including the federal government, claims that the individual mandate is a duty or an impost. The individual mandate is not an income tax because an income tax must target some “accession to wealth,” in the words of Commissioner of Internal Revenue v. Glenshaw Glass Co., the leading Supreme Court case on the subject. The fine imposed by the mandate does not target any accession to wealth or flow of income. It simply forces individuals to pay a penalty if they disobey the federal government’s regulatory requirement. The fact that low-income individuals are exempted does not change this analysis. A fine for jaywalking would not become an income tax if low-income individuals were exempted from it….

It is even more implausible to suggest that the mandate is an excise tax. Excise taxes apply to economic transactions or the use of property of some kind. For example, a tax on the sale of alcoholic beverages qualifies as an excise. The individual mandate does not tax any kind of activity, use of property or economic transaction….
If the mandate is not a tariff, impost, income tax, or excise tax, it is either a direct tax or no tax at all. And if it is a direct tax, it would be an unconstitutional one, because it is not apportioned among the states in proportion to population as the Constitution requires.

Even if Congress had called the mandate a a tax, that still would not have made it constitutional. But to the extent that labeling does matter, it’s not just a pure legal technicality. Those who argue that Congress has a virtually unlimited power to impose taxes claim that the main constraint on this power is political accountability. But that accountability is undermined if the federal government can pretend that a bill is not a tax in order to get it enacted, and then turn around and claim it is a tax when it comes time to defend the law in Court. Had President Obama and the Democratic leaders in Congress announced this was a tax from the start, it likely would not have passed in the first place.

Ultimately, the constitutionality of this law doesn’t turn on labels. Labeling this penalty a tax would not have made it so. But for those who believe that political accountability is the sole constraint on the tax power, labels are not mere legal tecnicalities either.

UPDATE: It’s worth noting that Chief Justice Roberts’ opinion only briefly discusses the crucial question of whether the mandate – if it is a tax at all – turns out to be an unconstitutional “direct tax.” The four justice dissent by Alito, Kennedy, Scalia and Thomas properly takes him to task for this:

[W]e must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps itis not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression thatdeserves more thoughtful consideration than the lick-anda-promise accorded by the Government and its supporters. The Government’s opening brief did not even address the question—perhaps because, until today, no federal court has accepted the implausible argument that §5000A isan exercise of the tax power. And once respondents raisedthe issue, the Government devoted a mere 21 lines of its reply brief to the issue….

UPDATE #2: Chief Justice Roberts’ opinion does include a very brief discussion of why the mandate is not a “direct tax” that must be apportioned among the states (pp. 40-41). But that does not address the question of whether it falls under one of the other categories of taxes allowed by the Constitution. If it is not an income tax, excise tax, tariff, or impost, it’s not a tax authorized by the Constitution – even if it also isn’t a direct tax.